Nuts and Bolts of Estate Administration: Part II

Last month we explored some of the basic issues in opening a charitable estate administration and a number of things you should consider at the beginning of the process. This article will deal with some of the more complex questions and situations that you may encounter during the course of the administration.

Should you hire an attorney to represent you?

This is an important question and one that you should consider in light of many factors. As soon as possible, you need to determine if there are issues for which it appears you will need legal representation. Hiring an attorney for every estate is certainly not necessary and that practice can result in a great deal of unnecessary expense. So, it is important that you carefully consider when it is prudent to obtain legal representation.

It is difficult to generalize on the types of issues that would require the expense of outside counsel. Whenever you are faced with a will contest, you should in most cases retain the services of counsel in the state where the estate is being administered. A will contest often comes about when someone not named in the will considers themselves to be entitled to a portion of the estate. This can be a relative, or someone who was under contract and is owed money from the deceased, or someone who asserts an equitable claim (e.g., someone has performed personal services and feels they are owed funds from the estate as payment for these services). In other cases, someone may decide to challenge the validity of a will based on the mental capacity of the donor.

If the will contest involves a relative, it could be a child or grandchild, or it could even be a more distant relative such as a grandniece or nephew. Oftentimes the relatives have no idea how much money “Aunt Mary” had until she passes away and the assets begin to be collected. Why is this so common? Because many of the people who leave a great deal of money to charities are truly those “millionaires next door” that many of us have encountered in the course of our work. These people have been very frugal during their lifetime. They usually inherited nothing from their parents, but managed to accumulate a large estate over a long period of time by habitually saving and living beneath their means. No one knows they have wealth because they drive old cars and have lived in the same small house for 40 years. Once it becomes known that they accumulated a sizable estate, then some relatives may suddenly feel “entitled” to a share of the estate even though it may have been years since there was any contact between those persons and the deceased!

Example: I know of one couple who have 14 children between them. They both worked for the U.S. Postal Service all their lives. They’ve lived in the same two-bedroom house in a working class neighborhood for many years. They do not believe in leaving their children money through their estates. They have told me that they believe the only way someone will grow to be the right kind of person is if they make it on their own. They feel they have always supplied their children with the resources they believed were necessary to help them become successful in their lives.

Their estate will be valued in excess of $6 million. Having provided sufficiently for their children during their lifetime, at the end of their lives they want all their money to go to charity to help children who are less privileged than their own. This is their legacy. They know that some of their children may not agree with their decision, but they also know that the majority of their children have learned the lessons that they have tried to instill and will not challenge their parents’ wishes.

They have told the charities that if any of their children contest their wills, they want the charities to vigorously defend against it. This is the spirit you see in many successful people. And, unfortunately, these may be the estates where will contests ultimately arise.

In these cases, it is wise to hire outside counsel. It will be much easier for the attorneys representing contestants of the will to talk with your attorney and negotiate a settlement (if that is indicated) than it will be for you to handle these conversations.

A factor that should definitely be considered when hiring an outside attorney is whether other charities are named in the will. If so, and your interests are not in conflict, then you should contact the other charities and try to get as many of them as you can to pool their resources to hire an attorney to represent your mutual interests.* This can save money on attorney’s fees as you will be sharing the costs rather than each of you having to pay an attorney separately.

When you hire an attorney to represent a group, make sure he or she is not planning to charge each of you the full hourly rate. I have seen attorneys in some cases try to justify this practice by saying they will have to discuss the case with each charity separately. If this comes up, negotiate an arrangement where the attorney communicates with all of the charities involved through regular, group conference calls. This negates the need for the attorney to charge each client a separate fee. If an attorney is unwilling to charge one fee, then the group should consider seeking another attorney.

There are other times when you may want to hire specialized counsel. For example, outside counsel may be helpful when you are dealing with hard-to-value assets, such as on-going businesses. Or, you may be handling real estate that will be difficult to sell for the fair market value due to any number of factors. You may also have to deal with mineral or timber rights in an estate where you need legal expertise beyond that of your regular attorney. There are any number of other complex matters that may require the assistance of specialized counsel.

How do you find the right attorney?

This is probably the hardest thing to do unless the estate is being probated in your community. Since donors may reside in various parts of the country at the time of their death, you will need to have a systematic way to hire competent counsel in areas that may be outside your community.

If you have local counsel, you may want to ask them if they have any affiliation with attorneys in the area where the will is being probated. If they cannot help you, then you may want to get help from a resource I use regularly.

Martindale-Hubbell is a helpful reference that lists attorneys in all areas of the country and also notes their specialties. Always choose an attorney who lists estate or probate as one of their specialties. Just as physicians specialize in a specific area, more and more attorneys are specializing in probate and other matters as well.

In many cases this resource will also provide a rating for each attorney. It works like this: attorneys in the same locale rate each other based on their years of practice, expertise, and the respect other attorneys have for them. This is presented in a grading system within Martindale-Hubbell as “AV,” “BV,” or “CV.” A “CV” rating does not necessarily mean that attorney is inferior, but it probably does mean that at a minimum he or she is relatively new to the practice of law and has not yet developed a track record. I would generally try to find a probate specialist with an “AV” or at least a “BV” rating.

But this is not the end of your due diligence. You should contact prospective counsel and discuss their qualifications and fee structure. Ask them if they have ever represented a nonprofit in a will contest. Ask if they know of your organization—after all, you want them to be your advocate in what may be a complex matter that may be worth a substantial sum to your institution. Explain the issues that concern you about your estate matter and probe them for their thoughts on how they would handle these issues.

While a charitable organization or institution may justifiably want to protect its interests, they should never be seen as overbearing or demeaning to a relative of the deceased, their counsel, or others. So, keep in mind that the attorney’s demeanor will be viewed as your organization’s demeanor in court. Remember that the first impression of a judge or jury in the matter is likely to be the same as yours. Be careful that you select someone who will present himself or herself in an appropriate manner and be able to handle delicate issues with sensitivity and finesse.

When and how do you settle an estate matter?

How do you know when and how to settle for what is fair, what fulfills your duty to carry out the donor’s wishes, and what at the same time protects your organization’s reputation? These may be the hardest questions of all.

In my experience, if you routinely settle for whatever is offered just to close out an estate and generate cash flow, you will undoubtedly over time cost your charity substantial sums in the form of lost revenue. On the other hand, if you push too hard to negotiate a large settlement, you may end up pushing too far and even tarnish your organization’s reputation in the eyes of those who could be potential donors. Remember that sometimes these cases attract notice and generate publicity in the local area. You always need to be sure that you can justify any position you take if it appears in the media.

Example: There was an extraordinarily complex estate that lasted for nine years, went up to the State Supreme Court twice, and finally settled with the charities who collaborated each receiving an average of $8 million. In such a case, there were a myriad of issues to be discussed and many points at which the charities had to take a hard stand. This case was in the press on a number of occasions and, in the end, the parties that opposed the charities were the ones who wound up looking greedy to the public.

It was hard for the charities to decide to continue to fight and there was one charity that settled early for $4 million. But, by being diligent and making some really tough calls, the other nonprofits involved gained tremendously. That average of $8 million per charity for those that didn’t settle early went a long way towards helping fund their missions! I was proud to have been able to help in the process that both fulfilled the donors’ wishes and provided such wonderful gifts for the charities they loved.

In the final analysis, you may need the assistance of knowledgeable attorneys and others who have handled enough estate matters to help you make these kinds of judgment calls. There is no substitute for experience when it comes to estate administration. And the cost of inexperience can be unconscionable. Be sure you have the right experts both outside and in-house working on these crucial matters for your organization.

* You should ask the attorney about the necessity of a joint defense agreement.

The publisher of Give & Take is not engaged in rendering legal or tax advisory service. For advice and assistance in specific cases, the services of your own counsel should be obtained. Articles in Give & Take may generally be reprinted for distribution to board members and staff of nonprofit institutions and other non-donor groups. Proper credit must be given. Call for details.

About Sharpe

Sharpe Group delivers training, consulting and a complete package of donor communication support offerings, including print and digital communications, to charities and nonprofits throughout the United States.